Elliott Spitzer walks away from prosecuting coporate crimes

Elliott Spitzer walks away from prosecuting coporate crimes

Sat, 25 Dec 2004

“After nearly three years of high-profile prosecutions of investment banks, mutual funds and insurance companies, Attorney General Eliot Spitzer of New York said yesterday that he is ready to cede those investigations to federal regulators.”

Whatever Eliot Spitzer can say about improvements in SEC’s regulatory oversight following the Enron scandals and the enactment of the Serbanes Oxley Law, he cannot say the same about FDA’s failed regulatory oversight of the drug industry.

It is astonishing that neither Spitzer nor The New York Times even mentioned Spitzer’s suit against GlaxoSmithKline, which charged the British pharmaceutical giant with fraudulent marketing of Paxil (Seroxat), a drug in the SSRI antidepressant class that increases the risk of suicide more than twofold. His quick retreat (after three months) and his failure to file suits against any US pharmaceutical company whose marketing tactics are no different from GSK’s, is especially troubling.

The NY Times notes that news of Spitzer’s laying down his effective legal weapons, leaving corporate criminals free and clear “was likely to be a welcome development for Wall Street executivesŠ”

How disappointing that one after another public official walks away from holding corporate criminals accountable – the crimes committed by the pharmaceutical industry are especially eggregious. Their crimes are not limited to financial losses – as were Enron’s–the pharmaceutical industry crimes and cover-ups resulted in preventable loss of lives.

Is there no public official with the stamina to fight the corrupt practices of drug manufacturers whose hazardous drugs kill 100,000 Americans per year, and whose mercury laced vaccines have been linked to neurological damage and autism in thousands of children? If ever there was a justification to prosecute corporations for criminal condutct, this is the issue.

After nearly three years of high-profile prosecutions of investment banks, mutual funds and insurance companies, Attorney General Eliot Spitzer of New York said yesterday that he is ready to cede those investigations to federal regulators.

Mr. Spitzer said he believed the era of state attorneys general crusading against misdeeds on Wall Street was ending. He said he was concerned that 50 different investigations would balkanize regulations, and added that once-lax federal agencies had become more aggressive about rooting out fraud and wrongdoing.

The shift, first reported in The Financial Times, represents a remarkable turnabout for Mr. Spitzer, who has built a reputation as a giant-killer with his investigations of Merrill Lynch, one of the country’s largest brokerage firms; Marsh & McLennan, the world’s largest insurance broker; and Richard A. Grasso, the former chairman of the New York Stock Exchange.

His decision comes just two weeks after he declared his candidacy for governor of New York in 2006, a campaign in which he will need to raise large sums to be competitive. Traditionally, many of those donations in a governor’s race come from Wall Street, but Mr. Spitzer said his move away from big-business investigations was not related to his campaign.

“This has nothing to do with that,” Mr. Spitzer, a Democrat, said in an interview yesterday. “If you think of it a zero-sum game, if the feds begin to do what they need to do, the relative role of state agencies would diminish. Nothing I’ve said means that we wouldn’t do all our cases over again. But as the pendulum swings, I think the feds have come back a bit.”

But Stephen J. Minarik, chairman of the state’s Republican Party, said the shift was a bald political move timed so the newly declared candidate for governor could distance himself from any criticism that Wall Street investigations had hurt the state’s economy.

The news was likely to be a welcome development for Wall Street executives, who have said that Mr. Spitzer’s investigations have sparked a frenzy of potentially contradictory state investigations from California to Oklahoma to West Virginia. He was particularly criticized by the industry for being stricter than the Securities and Exchange Commission, the federal agency charged with policing the markets.

“The notion that he claimed that the S.E.C. was asleep at the switch, and therefore, that all enforcement activity should fall to the states, that took it too far,” said Marc Lackritz, president of the Securities Industry Association. “All of a sudden you had lots of imitators, Spitzer wannabes.”

Mr. Lackritz said some of Mr. Spitzer’s fixes to conflict-of-interest cases on Wall Street had gone too far, building needless barriers between investment bankers and research analysts. And Mr. Spitzer himself said that a flurry of state prosecutions could muddle regulatory territory.

“I’ve always said that there’s a real risk to having 50 different enforcement entities,” Mr. Spitzer said.

Although critics said ambition and ego had fueled Mr. Spitzer’s voracious investigations, he long maintained that his office acted because agencies like the S.E.C. had failed. Now, Mr. Spitzer said, the new S.E.C. chairman, William H. Donaldson, and the Food and Drug Administration’s investigations of arthritis medications were signs of a more aggressive posture.

“The notion that you could just abandon the regulatory role has been left behind,” he said. “I don’t know if it will have a dramatic impact on what we do. We’ll see how it plays out.”

Mr. Spitzer would not say whether he planned to shift his focus toward investigating corruption and backroom dealing in state government – issues likely to be prominent in the governor’s race. Political analysts said Mr. Spitzer has to demonstrate that he can reform Albany as well as Wall Street.

“Not until recently has he weighed in, in a significant way, on issues dealing with state politics,” said Blair Horner, legislative affairs director for the New York Public Interest Research Group. “If Spitzer wants to be governor, he’s got to develop a sophisticated response to the myriad of problems, and that’s going to take some time, and it’s going to take some thought.”

Mr. Spitzer talked about his shifting attitude toward Wall Street and the S.E.C. two weeks ago during a breakfast meeting at Skadden, Arps, Slate, Meagher & Flom, a Manhattan law firm where he once practiced. He also discussed the subject at a meeting of the New York Partnership.

Arthur Levitt, the S.E.C. chairman under President Bill Clinton, said Mr. Spitzer had distinguished himself as a fierce opponent of Wall Street malfeasance, but he cautioned against now putting too much faith in federal regulators.

“If Spitzer is saying that now he’s turning the whole thing over to the S.E.C., I think that’s wrong,” Mr. Levitt said. “I think that we need a diligent New York State protector of investor rights working with the S.E.C.”

Mr. Spitzer, a former prosecutor who used his family’s fortune to run for attorney general, charged headfirst into Wall Street two years ago, wielding the Martin Act, a 1921 state law giving him jurisdiction over stock trading. He accused Merrill Lynch of publicly pushing stocks that its analysts derided in private.

Merrill apologized and paid $100 million in fines, and over two years his investigations squeezed $4.4 billion from various firms. Fortune magazine called him “The Enforcer,” and The Financial Times named him its Man of the Year yesterday.

Political analysts said Mr. Spitzer had earned many enemies on Wall Street, but campaign-donor records show he still has friends in the financial sector. Of the $6.8 million Mr. Spitzer has amassed since January 2003, $929,008 came from donors in finance, real estate and insurance, according to Follow the Money, an Internet database of campaign contributions.